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Investing.com -- With the S&P 500 now trading at 22 times next-twelve-month earnings, Barclays (LON:BARC) analysts say “valuation alone may not be one” of the major headwinds facing equities.
“SPX is back to 22x NTM EPS,” Barclays wrote, noting that “30 years of history suggest that current levels could signal bear capitulation assuming EPS growth stays positive.”
Barclays examined three decades of forward returns across valuation bands and found that “while average returns decreased (and the variance of those returns increased) as valuations rose from 10x to about 21x, returns actually improved modestly (and variance decreased) as NTM P/E crossed over 22x, up to about 24x.”
The analysts argued that this range “has typically traded at these levels for sustained periods in the aftermath of fast sell-offs and subsequent V-shaped recoveries (1998 and 2020 being prime examples),” adding that “22x could be a good approximation of where bears capitulate and ’animal spirits’ fuel the chase for additional upside.”
They cautioned, however, that “equities could be choppy over the near term as markets await clarity on US fiscal policy,” and that “2Q25 earnings [are] likely to feature the first substantive hit from tariffs.”
Still, Barclays emphasized that “we see a limited case for valuation alone as an argument against further upside,” especially if “earnings growth picks up to ~9% in 2026, as we expect,” they wrote.
Barclays concluded that while “several pitfalls from fiscal to tariffs lay ahead for equities,” the market’s current valuation is not necessarily a ceiling.
